Why investing in stock market is a lucrative option?
One has to just look at the way the stock market has performed over the last two decades to realise that investing is one of the most profitable venture one can take up. Investing in stocks can be one of the most lucrative options. One must just look at the way the stock market has performed over the last two decades to realise that investing is one of the most profitable venture one can take up. The beginning is very simple.
There could be many ways of investing in stock market. Investing in stock as an individual trader is as easy as opening an account & start trading.
However, to be profitable on the investment, one should make a thorough analysis on a specific stock before investing. The focus of analysis could vary from investor to investor depending on the investing capability, whether the investment is intended for long or short term, which segment the investor want to target etc
Broadly the stock analysis could be divided in to 2-3 categories.
Fundamental analysis is an assessment which indicates how strong the company portfolio is, Whether the company can sustain in long run, whether the stock can make me profitable in short, medium & long term.
Some of the key indication for fundamental analysis may include but not limited to the following.
- What is the revenue in numbers? Is this good enough in the category while comparing with the share price?
- Earnings per share
- What are the future growth opportunities in this segment vs what are the plan for growth by the company?
- Return on equity is one of the crucial parameters while doing fundamental analysis, which can represent the profitability of the company.
- Going through the complete annual report could be a good option to get a comprehensive performance output.
Unlike fundamental analysis, technical analysis most of the time focuses on a short-term trading opportunity. The historical stock price pattern plays an important role in the technical analysis. This method of analysis is popular amongst the professional analyst groups.
There are different methods of doing technical analysis, following are to name a few.
- Basis on price trend
- Following chart patterns
- Volume & momentum indicator-based analysis.
- Figuring out moving average patterns
- Trade based on support & resistance threshold.
Geopolitical impact on stock
A good trader should always be mindful of the geopolitical moment or a situation which can have a significant impact on a specific type of stock or on the entire economy.
Stock price may go in a reverse direction to fundamental or technical indicators have indicated.
There could be an instance where a stock was valued very less based on the Fundamental indicators & hence the stock moment was very less, which has an impact on the stock price, the stock demand being very less…Suddenly due to a Natural calamity the company has received big orders, considering the company deals in segment which can help in recovering the disaster situation. As a result, company has started making more sales -> Profits, demand has increased & the stock price went sky high.
They could be many ways of investing in stocks not limited to below examples, a wise investor would always assess his level of understanding on the market before choosing a mode of investment.
- Buying stocks or derivatives on cash market
Someone quoted “Investing in stock is easy, but difficult to make profit”, however as discussed earlier, a person needs to know math well before he attends a math examination with the intention to clear the same.
A stock broker can help new investors to a good extend, if the broker is choosen carefully.
If someone knows the math of stock market & carries out adequate analysis, making profit in most of the scenarios should not be a big deal !!!
- Going for Mutual funds
Mutual fund could be a good option for the people who do not want to get into the series analysis explained earlier. You have fund managers who analyse the stock for you & build a bucket of funds, where the risk is also divided across the bucket of stock. The fund managers charge a premium for their effort.
- Opting for SIP
SIP stands for “Systematic Investment plan”, where the same Mutual fund concept applies. One may choose a Mutual fund after a throw evaluation of the stocks in the portfolio & choose the investment to be in periodic basis for a long term.
The main benefit here on top of one-time Mutual fund investment would be averaging out the price over a period of time, which means if 5 out of 100 stocks in the portfolio have not performed well for a certain period, then you have a gain on the 95% of stock for the entire period & 5% of gain for the period, for which they have performed well.
In most of the situations SIP gains are profitable, however the profits are limited unlike investing in direct stocks.
To conclude this article my two cents would be, of course Stocks are one of the lucrative investment options available to Indian Investors specially looking at the rise of BSE & NSE in the last few years, however choosing the right mode of investment is the key depending on the available resource. Someone Investing on stock is expected to gain a good profit, however careless investment may backfire.
Happy Investing !!!